Renzi one year on: austerity still rules Italy

One year after PM Renzi came to power and three governments since Berlusconi, Italy is still depressed, thanks to unending austerity programmes, finds Leopoldo Nascia*

Seven years of crisis and three and half years of political shocks the have brought, in succession, the governments Mario Monti, Enrico Letta and Matteo Renzi, have failed to pull Italy out of its depression. Austerity policies imposed by the European Union remain central to Italy’s economic policy, remain the rule despite the rapid changes at the PM’s offical resident in Rome’s Palazzo Chigi.

Under the last three governments gross domestic product had continued to fall: if we use the baseline of 100 for gross domestic product (GDP) since the resignation of Silvio Berlusconi in November 2011, we are now at 96, and the return to growth can only been seen in the forecast for 2015, which is as rosy as the previous 3 years’ predictions, which all proved incorrect.

The politics and backdrop to the last three governments were all very different – Monti for the stormy end of two decades Berlusconi, Letta for the convulsive compromise after the elections that did not produce a majority, Renzi for the promise of the “new” that would “scrap” the past. But on the other side of the political horizon things have remained the same: each have been governments of “grand coalition” between center-right and center, and moreover with austerity on the agenda.

Three and a half years ago there was the resignation of Berlusconi – who until the last denied the existence of the crisis – and the Monti government had to manage the most difficult moment: euro crisis, contagion from Greece and Portugal, sky high government borrowing costs, policies dictated by Brussels, Berlin and Frankfurt. The results were the collapse of the GDP, which fell by 3% during the Monti government, with industrial production plummeting by 8% and household consumption by 7%, 32% more unemployed, government spending that went into red and the debt / GDP ratio that jumped 116 to 126%.

Since then depression has engulfed on Italy. The unstoppable reverse in GDP brought the country back to the income levels of 1999, just like Greece. Industrial production remained steady under both Letta and Renzi and if we compare it with 2008, before the crisis, the fall amounts to over 20%. All put their faith in exports, but, growing by just 2% in three and a half years, they reflected the stagnation of European countries and the increasingly fierce Asian competition in many sectors “made in Italy”.

Same story for consumption. The loss of 7% since the Berlusconi left office has not recuperated, neither under Letta’s watch, not, so far, Renzi’s: the 80 euro monthly [tax cut] to lower income groups won Renzi the European elections but did nothing for the economy nor Italians’ pockets.

The consequences of depression primarily affect workers. The numebr of people in employment slid with the crisis, most sharply under the Monti government, but since then the jobs recovery has been minimal. The number of unemployed has increased by one million over the past 3 years – under Renzi there are now 3.3 million people looking for work without success. Even here the continuity of policies – from the Fornero reforms to the Jobs Act – is relentless: cutting labour costs for businesses, making it more “flexible” and offering fewer protections. But all this has had zero effect on employment growth. Conversely, Italians Not in Education, Employment, or Training (NEETs between 15 and 24 years) has exploded, up 18% in three years and a half, with an acceleration under Renzi.

All of this the result of three and a half years attempting fiscal consolidation and public debt reduction. But the euro crisis and depression has worsened the public finances: while under the Prodi governments before the crisis government spending showed a primary surplus – the balance before interest payments on the debt. The accounts have been compromised by the policies of [higher spending] and tax cuts under the last Berlusconi government, and the primary balance turned negative with Monti and Letta, until the return of surplus due to spending cuts by Renzi. But a smaller deficit does not mean a smaller public debt: the debt / GDP ratio has grown unabated; in the past three years it has grown from 116% to 132%. The Italian debt – after Germany’s, second largest in Europe in absolute size – no longer has the same explosive dynamics, thanks in part to deficit reductions, but depression has compounded its weight on the economy.

The results of the first year of Renzi’s government does not deviate significantly from its two predecessors, despite the fact they suffered more difficult international conditions. We now have a more generous ECB policy and a reduction in government borrowing costs, the depreciation of the euro and the drop in oil prices. There was also the Italian-led European Semester. But, of all this there is not a trace in the figures for the Italian economy a year since the arrival of Matteo Renzi. The depression continues, austerity policies persist unaltered, as do those on tax, labour and production. The change in rhetoric can deceive, perhaps, only up to a certain point.

*Researcher at the National Institute for Statistics (ISTAT, the main official source of information), specialised in public spending and author of numerous works on the third sector, innovation, local development and R&D.